Scott writes about Internet competition and threats to tech capitalism (economic regulation, property infringement, and harmful industry behavior and misrepresentation.) Cleland is President of Precursor® LLC, a Fortune 500 research consultancy focused on the future of Internet competition, privacy, security, property rights, innovation and algorithmic markets. Scott Cleland is author of the book: “Search & Destroy: Why You Can't Trust Google Inc.” www.SearchAndDestroyBook.com. Cleland also authors the widely-read www.PrecursorBlog.com; publishes www.GoogleMonitor.com; and serves as Chairman of www.NetCompetition.org, a pro-competition e-forum supported by broadband interests. Eight Congressional subcommittees have sought Cleland’s expert testimony and Institutional Investor twice ranked him the #1 independent telecom analyst in the U.S. when he was working for institutional investors. See a full bio at www.ScottCleland.com.

Google's Earnings Spotlight Its Antitrust Liabilities

Google CEO Larry Page aptly described its 33% revenue growth performance in 3Q11 as growing “gangbusters.” Well the true “gangbusters,” (antitrust authorities at the FTC, DOJ, Texas, California, New York, European Union, and Korea) are all investigating the Googleopoly Gang’s myriad of anti-competitive abuses of its exceptional market power. Specifically, Google’s 3Q11 earnings provide new and additional evidence for their very serious respective antitrust law enforcement investigations of Google.

The Big Antitrust Takeaways

First, Google is rapidly consolidating its monopoly position. Google reported that revenue growth for Google properties grew 39% y/y while Network revenues (everybody else) grew 18% y/y. Since Google properties have a revenue base three times everybody else’ combined, that 39-18% growth differential means Google is very rapidly taking market share at the expense of the market of search-dependent competitors that depend on the dominant Google search advertising platform to be the unbiased honest broker they have long represented Google to be. In my July Googleopoly VIII white paper, using Google’s publicly reported numbers, I documented how Google’s misrepresentation and self-dealing reinforces Google’s dominance and limits competitive opportunity. Simply, competitive content cannot compete against Google’s self-dealing market power to “hardcode” rank its content first. Google’s latest earnings report put a spotlight on this Googleopoly bottleneck-squeeze of competitive online content.

Emarketer estimates Google’s search advertising revenue share to be ~80%, and Google’s dominant size combined with its huge advertising revenue growth differential, will mean Google will soon dominate more than half of all U.S. online advertising as the IAB quantifies the market. These market share numbers make it painfully clear that the FTC made a big mistake in approving the Google-DoubleClick acquisition in 2007, because that transaction was what effectively tipped Google to a search advertising monopoly and what gave Google the extension bridge to ultimately dominate all online advertising.

Second, Google has successfully extended its search advertising monopoly to mobile. On Google’s earnings call, Google boasted that its Android mobile business was growing “gangbusters” with an annual revenue run rate of $2.5b — up from $1b a year ago. With 97% of the world’s mobile searches per StatCounter, it’s pretty obvious that Google has a stronger monopoly position in mobile than its original desktop search business.

The question for antitrust authorities will be whether Google engaged in anti-competitive practices to extend its monopolization into mobile. There is a lot of evidence it did. Are Oracle, Apple and/or Microsoft right in their lawsuits that Google willfully infringed on their property to avoid costs to offer a monopoly-subsidized free Android operating system so that Android could quickly take share and become the world’s dominant mobile OS in only a couple of years? Is Skyhook Wireless right in its patent and unfair business practices suits that Google anti-competitively forced HTC and Samsung to break contracts with Skyhook Wireless’ patented mobile location engine to use Android’s infringing mobile location engine in order to provide Google essential location data to continue to dominate mobile advertising? Will the FTC admit it blew the Google-AdMob antitrust review in approving the AdMob acquisition despite having “serious antitrust concerns?” The FTC’s heroic linchpin assumption in approving Google-AdMob was: “The Commission has reason to believe that Apple will quickly become a strong mobile advertising network competitor.” The competitive facts of the last year and half show that that FTC linchpin Google-AdMob approval assumption was near completely wrong.

Third, the Googlomerate is rapidly extending its search dominance into many adjacent markets. On the earnings call, Google boasted ~200m Chrome users, in just three years time, easier to do when Googleopoly Search ranks Chrome, (and Google-funded Mozilla Firefox) in the top spots of Google’s ad and search results for browsers. Google also boasted ~190m Android users, which means in a couple of years Google has gone from zero to about ~44% share of the mobile operating system market piggybacking and leveraging Google’s 97% mobile search share. Google also boasted about growing its Google+ social media product to 40m users in three months time, in part by posting a big arrow ad on its Googleopoly search page to direct users to Google+. Google also boasted of being very excited about YouTube’s growth in most all metrics, usage, ads, revenues etc., and YouTube just happens to be the second largest generator of searches in the world.

Finally, Google is poised to be busted by the EU for monopoly abuses in the coming months. Google’s earnings showed that Google’s monopoly is even more powerful overseas. While the company overall grew 33% y/y, Google’s rest of world revenues grew 45% y/y. With all the focus on the Senate antitrust hearing this past quarter, many have forgotten that the first big antitrust shoe to drop will be the EU’s, because the EU launched its investigation several months before the FTC did in the U.S., Google’s search market shares are much higher in the EU than in the U.S (90+% in EU vs. 70+% in U.S.), and it is illegal to have a monopoly in the EU, unlike the U.S. where a legally-gained monopoly is not illegal.

In sum, given the facts above, and the nine anticompetitive complaints in the EU against Google, no one should be caught by surprise when the EU’s investigation yields a serious EU Statement of Objections to Google’s market behavior and practices in the coming months. It will be a very big deal, because unlike the U.S., an EU Statement of Objections is more like a preliminary court decision, not the announcement of a lawsuit like in the U.S. When the EU’s highly likely Statement of Objections becomes public in the coming months, it will spotlight that Google’s deep antitrust liabilities have only just begun.

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